More than one in eight UK high street shops could go out of business in the next three years; many of these “zombie” companies are only able to stay trading due to very low interest rates, and are not paying down the capital on loans

September 1, 2013 11:55 am

More than 1 in 8 UK shops face closure, says study

By Duncan Robinson

More than one in eight shops could go out of business in the next three years, according to an in-depth review of the UK’s struggling high street by former Iceland and Wickes chief executive Bill Grimsey. The retail veteran has claimed that nearly half of the UK’s retailers are under extreme financial pressure, as the high street struggles to deal with a slump in consumer spending. This figure rises to two-thirds among small retailers, according to an analysis by Company Watch, a financial risk management group which Mr Grimsey commissioned to carry out research.The number of retailers with liabilities larger than their assets has more than doubled in the past five years, jumping from 8,600 retailers in 2008 to more than 20,000 retailers today, according to an analysis of accounts at Companies House conducted by the group. In total, these business have net liabilities of £2.3bn.

The research concludes many of these “zombie” companies are only able to stay trading due to very low interest rates, and are not paying down the capital on loans.

“We are in a world where no bank or creditor wants to push the company over the edge and crystallise the loss, unless they have no alternative,” said Nick Hood, head of external affairs at Company Watch.

“They are not all going to fail,” he added. “As things get better, companies can raise money or earn profits to put things right. But many of these are at a real risk of failing.”

The research comes after the Local Data Company and the Saïd Business School predicted that 13 per cent of stores open today could shut their doors by 2018 due to the combined pressures of rising property costs, weak consumer spending and the acceleration of online retailing.

“Retail is precariously poised right now,” said Mr Grimsey, who set up the review as alternative to the Portas Review, a controversial report by retail expert Mary Portas into the health of the high street released in 2011.

The report was panned in some quarters. One suggestion that out-of-town retail developments should be subject to ministerial review was branded “insane” by the chief executive of Next, the FTSE 100 retailer.

Ms Portas is set to appear before the Communities and Local Government Committee select committee on Monday to talk about the progress of her review.

This year has been marked by a string of high-profile administrations, with stores including HMV, the entertainment retailer, Jessops, the camera specialist, and Nicole Farhi, the fashion house, all going out of business.

Modelzone became the latest retailer to go under last month, after no one was willing to buy the toy shop out of administration.

Suggestions from Mr Grimsey’s review, which is due to be published on Wednesday, also include proposals on reducing business rates, encouraging greater bank lending to small retailers and the introduction of a dedicated minister for the retail sector.

“The retail sector is bigger than health, education, defence – and yet it doesn’t have a minister. It gets appended to the business secretary. You need someone in the cabinet with responsibility for this,” Mr Grimsey said.